ODAC Newsletter June 15

Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre at nef dedicated to raising awareness of peak oil.

This week saw the release of the annual BP statistical energy review. In the words of the press release 2011 was a year of "disruptions to supplies and ever-increasing demand". The big stories for oil were supply disruption in Libya, a record average oil price of $100/barrel, an average annual Brent price rise of 40%, a decline in OECD consumption of 600,000 bpd, and an increase in US production of 275,000 bpd — the largest increase outside OPEC. The message Bob Dudley wanted to get across was the power of open markets to supply energy, and the growth of global proven reserves. The message he ignored was the underlying depletion rates on the easy to produce oil. Proven reserves have increased, but so has the cost at which they can be extracted, while the energy return for producing them is on a downward curve.

The IEA warned this week that despite the recent drop in prices, oil is still sufficiently expensive to be a severe drag on the economy. Support for this view came this week from Terry Leahy, former boss of Tesco. Leahy told Channel 4 news that the main reason for the current financial woes in the UK is that the UK has been suffering an "oil shock" since 2010. OPEC also appeared to agree as members decided against a production cut —in reality of course any cut would be expected to come from Saudi Arabia and the rumour is they are already doing it.

In the UK this week it was a good week for wind. In a speech at the Global Offshore Wind Conference Ed Davey referred to "the quiet majority out there" who are pro wind energy expansion — a challenge to the less than silent minority on the Conservative back benches. Meanwhile an industry-led report released on Thursday detailed a plan to slash costs by 30% by 2020. Still in the balance is the government's position on what subsidy will be available to wind in future. DECC had been aiming for a 10% cut to reflect cost reductions, however the word is that George Osborne is pushing for 25%. While Davey used his speech to underline the government's commitment to its renewable targets and the relatively low cost of subsidies to offshore wind — a cost of 1p per day to the average household in 2010/11 - there was no update on the subsidy cut. The upcoming decision will give an indication of who is driving energy policy, DECC or the Treasury.

Oil

The world's store of oil jumped 8.3 percent last year, as exploration rose and record crude prices made marginal projects commercially viable, yet supplies will struggle to meet demand due to political factors, oil giant BP (BP.L) said on Wednesday.

BP said in its annual calculation of global oil and gas reserves, considered the industry's most comprehensive, that oil reserves totalled 1,653 billion barrels at the end of 2011...

The International Energy Agency said the oil market is better supplied than at the start of this year amid concern that slowing growth will curb crude demand.

The IEA reduced its forecast for 2012 crude consumption to 89.9 million barrels a day, the Paris-based energy adviser said. That's revised down by 100,000 barrels from May and reflects an increase of 820,000 barrels from last year...

Most in the Organization of the Petroleum Exporting Countries want lead producer Saudi to cut back to defend oil prices at $100 a barrel but Riyadh is keen to prevent high fuel costs hampering a return to stronger economic growth in the West...

China's oil imports will likely surge past last month's record in either June or July as falling prices and expanding storage capacity encourage the world's second-largest buyer to boost its emergency stockpiles.

Higher overseas purchases by China would be a bright spot in an otherwise grim outlook for oil demand amid uncertainty about the strength of the Chinese economy and the euro zone debt crisis, which pushed oil prices down in May by the most in more than three years...

Japan's lower house is set to pass a bill on Friday to provide government guarantees on insurance for Iranian crude cargoes, making it the first of Iran's big Asian buyers to find a way to keep the oil flowing in the face of tough new EU sanctions.

A European Union ban on member countries importing Iranian oil takes effect on July 1 and includes a ban on EU insurance firms from covering Iran's exports. That is a headache for Japan, South Korea, China and India, who together buy two thirds of Iran's oil exports and rely on EU companies to insure them...

The oil price could almost halve later this year if the crisis in the eurozone escalates, Credit Suisse believes.

"Brent oil prices would again hit $50 (£32) a barrel" in a worst-case scenario, according to analysts Jan Stuart and Stefan Revielle. "Oil demand would deflate sharply following acute crises of confidence."...

In an interview with Channel 4 News's Cathy Newman, Mr Leahy said that all companies were experiencing a bit of "wear and tear" and backed his successor Phil Clarke's decision to carry out a £1bn revamp of its UK operations.

"If we could get a bit of a relief from high energy prices I think I would see a little recovery in the shops," said Mr Leahy, who also backed Mr Clarke's offer to give up his bonuses if sales do not improve...

Coal

Coal has carved itself a 30% share of the global energy market - its highest level in over 40 years - undermining attempts by governments to reduce their carbon emissions, new figures show.

China and India both increased their use of carbon-heavy coal by over 9% but Europe, where political consensus against global warming is strongest, also saw a 4% increase, according to the BP Statistical Review of World Energy...

Japan has taken a potentially decisive step towards restarting two of its idled nuclear reactors after the mayor of a town located near a power plant approved plans to bring it back into operation.

The country has been without nuclear power since 5 May, when a reactor in the northern island of Hokkaido became the last of 50 working reactors to be shut down in the wake of the Fukushima nuclear disaster...

Renewables

Developers installed 85 percent more solar panels in the U.S. in the first quarter than a year earlier, led by strong growth in commercial projects and demand in New Jersey, according to the Solar Energy Industries Association.

Total U.S. installations were 506 megawatts in the quarter and may reach 3,300 megawatts this year, about 11 percent of the 2012 global market, the Washington-based trade group said today in its quarterly market report...

Biofuels

European Union support for biofuel production could force the price of food crop staples up by as much as 36% by the end of the decade, a report has warned.

Development charity ActionAid warned that the allocation of ever-growing acres of farmland to producing crops for fuel was already a "major contributor to world hunger" and could make the problem worse in the years to come...

UK

Energy and climate change secretary Ed Davey has today vowed to oversee the continued rapid expansion of the UK's renewables sector, in a keynote speech designed to dampen recent speculation that the government is considering watering down its support for the sector.

Speaking at the annual Global Offshore Wind Energy conference in London, Davey said the offshore wind sector had established itself as "an industry of strategic national importance" and stressed that he was "determined that the UK will remain the best place to invest in renewables"...

Following my revelation that George Osborne's Treasury is seeking to slash the subsidies for onshore wind power - the cheapest form of renewable energy - the House of commons select committee on energy and climate change is to investigate.

Conservative MP Tim Yeo, chair of the committee, said: "Government policy on wind power should be based on sound economics and engineering, not political pressure from a small vocal minority — whether that be green campaigners or anti-wind protestors." Others have identified the key vocal minority more precisely: the backbench Conservative MPs who demanded David Cameron slash the subsidies for onshore turbines. (I wrote about the politics of this previously.)...

Offshore wind developers are set to embark on an ambitious programme to ensure the sector is cost competitive with other green technologies by 2020, following the release today of a major new report that calls on ministers to boost their support for the emerging sector.

The Department for Energy and Climate Change (DECC) will today unveil a report by the industry-led Offshore Wind Cost Reduction Taskforce, which includes 29 recommendations on how to cut the cost of offshore wind energy from £140 per megawatt hour currently to £100/MWh by the end of the decade...

The government's flagship green policy to transform the energy efficiency of 14m homes and create 65,000 jobs appears set for failure, after revelation that its own impact assessment shows the number of lofts being lagged per year will plummet by 83%.

The green deal is at the heart of the government's ambition to be the "greenest ever" as it will deliver large cuts in climate-warming carbon emissions, and curbhigh energy bills by making houses warmer and less expensive to heat. It is due to begin in the autumn. Britain's homes are old and leaky by international standards and millions of lofts and cavity walls remain poorly insulated. These home energy efficiency measures are seen as the cheapest way to cut both energy bills and carbon emissions...

The UK has denied it has created a stumbling block for the adoption of the EU's Energy Efficiency Directive that could see the regulation's ambitious policy proposals watered down.

Plans to cut energy use by 20 per cent against predicted levels by the end of the decade and impose a requirement for utilities to deliver energy savings equivalent to 1.5 per cent of annual sales have been the subject of intense negotiations since being proposed last year...

The UK's offshore wind energy industry is today celebrating as developers confirmed that the world's largest wind farm, the Walney project off the Cumbria coast, has been fully commissioned with all 102 turbines now feeding electricity to the grid.

The wind farm, which combines the Walney 1 and Walney 2 wind farms, boasts 367MW of capacity and is expected to provide about 320,000 homes with renewable power...

Transport

European airlines could post a record loss of $1.1bn (£711m) this year, nearly double the forecast three months ago, the aviation industry warned yesterday.

The International Air Transport Association's (Iata) forecast reflects dampened demand as recessions in the UK and Spain and turmoil in Greece and elsewhere in Europe have seen would-be travellers stay put...

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